‘Imperialism in the Twenty-First Century’ – A Review

Imperialism in the Twenty-First Century by John Smith, Monthly Review Press, 2016.

Even in the days of Brexit and Donald Trump, the dominant theme of the corporate media remains that the rising tide of ‘globalisation’ will lift all boats. Some go so far as to claim that the UK and the US are not for globalisation because it favours the developing nations. Others do recognise the division between the exploited multitude and the exploiting elite, but they pose such divisions at a global level, independent of the division between developed and developing nations. Even those who discuss imperialism have focussed on the spheres of finance and/or the realm of extractive industries, and may ignore the sphere of manufacturing.

Smith’s work argues that globalisation is all about imperialism, that is, the systematic exploitation of people and resources of the so-called developing nations of the South[3] by the corporate interests and the states of the North. More importantly, he contends that the shift of global manufacturing to the South is at the heart of the “imperialism of the twenty-first century.” Given the significance of Smith’s work, I have attempted here, not so much a review, but a detailed presentation. The purpose is to persuade a potential reader to go through the original, as well as to aid those who may not be able to access or read the whole book (in part II some of the details and the data are provided; those looking for the basic argument may skip it).

I. The Mainstream Argument for Globalisation

Bangladesh is the world’s second largest producer of Western apparel brands. The industry employs millions in Bangladesh, and apparel exports from the country are worth more than US$25 billion per annum. In the wake of fire in one of the export factories at the outskirts of Dhaka in late 2012 that killed at least 117 workers, renowned free trade theorist and long-time Nobel prize hopeful Jagdish Bhagwati wrote a column in Prospect[4] asserting that the blame lay squarely and only with the local business and state for the deaths, and not at all with the Western brands and/or the final consumers. Bhagwati asserted:

There is only one place where the buck can and should stop: local and national authorities responsible for safeguarding the health and safety of their workers. They repeatedly fail to hold greedy and/or careless entrepreneurs throughout their countries to account.

The likes of Bhagwati have been arguing that globalisation leads to economic development through providing employment, increasing the wage rates and empowering women by providing factory employment, as in the Bangladesh garment industry. The idea is that eventually, through this process, the developing economies will be able to catch up with the West. This has also been the raison d’être for the present NDA government’s flagship policy of Make in India.

Days after the article was printed in Prospect in April 2013, a far deadlier factory accident took place in Bangladesh, killing more than 1100 workers and injuring more than 2000. This time an eight-story building housing several garment factories collapsed while the factories were fully at work. These factories were suppliers to some of the world’s top brands. Predictably, the latter tragedy did little to dent the opinion of Bhagwati. He promptly churned out one more column in the New York Times,[5] in which he continued to blame the locals and absolve the West.

This has been the standard mainstream argument for more than the last two decades: that such globalisation is our only salvation; if there is any problem with it, the problem lies with the manner of its local implementation and not with its global planners in the West. Twenty five years after India embarked on the path of globalisation, and a hundred years after Lenin wrote his tract on imperialism, John Smith’s book on theImperialism in the Twentieth Centurysheds fresh light on the debate.

II. The Reality of Globalization

Smith argues that the centre of gravity of world manufacturing has shifted to the countries of the South and away from North, and that has to be taken into account by any theory on North-South relations, or for that matter on capitalism. Imperialist nations’ imports of manufactured goods have quadrupled since 1980; the percentage sourced from developing countries has tripled in the same period.[6] By 2010, developing nations accounted for more than 40 per cent of world manufactured exports.

Approximately one third of the world trade is reported to be within firms. However, that could well be a substantial underestimate. According to UNCTAD, about 80 per cent of global trade in terms of gross exports is linked to the international production networks of TNCs. Consequently, lakhs of jobs have been moving out of countries like US to the developing countries every year since the 1990s, when this process of ‘globalisation’ picked up pace. According to the International Labour Office (ILO), Asia’s 900-plus Export Processing Zones employed 53 million workers in 2005-06, out of which 40 million were in China alone, and another 3.25 million in Bangladesh; out of another 10 million employed in EPZs, 5 million worked in Mexico and Central America.

Smith begins with global production and consumption of textiles, the very subject of Bhagwati’s case for globalisation. Only 2 per cent of the clothing worn in the US is actually made there. The primary reason is dirt cheap labour. Huge mark-ups are made as the commodity leaves the Southern shop floor on its journey up the North. Take, for instance, a replica football shirt that is mostly made in the Far East for £5 with a 50 per cent mark-up by the local factories. Global companies add another 100 per cent and sell it to retailers for £14. Then retailers in turn add a mark-up of another 150 per cent to sell it at £35 to the final consumer in UK, at seven times the production cost. A Hermes polo shirt retailing at $455 boasts an even more substantial mark-up, in excess of 1800 per cent on its production cost. Smith emphasises that not only do workers in the third world work for low wages, but even the factory owners in the third world work on the tiniest of possible margins, often as low as 2 per cent.

This is the case not only with traditional industries like textiles: so-called hi-tech industries are no different when it comes to outsourcing for dirt cheap labour power. A 2010 study by Asian Development Bank reported that while the total manufacturing cost of an iPhone was $179 in China, it was sold at $500, at a gross profit of 64 per cent. Out of this, the cost of Chinese workers in assembling it was a paltry $6.5 – which is 3.6 per cent of manufacturing cost, or 1.3 per cent of selling cost. If the same iPhones were assembled in the US, the total assembly cost would rise to an estimated $65, but would still leave a huge profit margin of 50 per cent for Apple, signifying the monopoly rent the company is deriving.

Another way of looking at the advantage of ‘China cost’ is the fact that the numbers of workers employed in iPod-related activities in US and China were similar, and yet the total US wage bill for manufacturing iPods was nearly 38 times that in China.In 2013 Hon Hai Precision (known by the name of Foxconn), makers of most of the Apple products worldwide, made $10.7 billion profits on sales of $132 billion, that is $8,685 per employee, while Apple made profits worth $41.7 billion on sales of $164.7 billion, that is $572,800 per employee – 66 times that of its Chinese manufacturer, and that without having even a single manufacturing facility of its own!

Such dirt cheap Chinese labour comes with added benefits, such as their availability literally 24×7, like slaves. A former Foxconn executive cited in a New York Times story (Jan 21, 2012) recalled that when Apple redesigned its iPhone just weeks before it was due on the shelves worldwide, requiring an overnight assembly overhaul, the 8,000 workers inside the company’s dormitories were woken up in the middle of the night, given a biscuit and a cup of tea, and guided to a workstation. Within half an hour they started a 12-hour shift fitting glass screens into beveled frames; within 96 hours, the plant was producing over 10,000 iPhones a day!

In 2013 FDI flows to the developing countries surpassed such flows to developed countries for the first time. Moreover, FDI flows between imperialist countries are puffed up by investments in finance and business services; for instance between 2001-2012, FDI in finance and business activities in imperialist countries totalled $1.37 trillion, more than twice the FDI flow in manufacturing. And a much greater part of FDI flow amongst imperialist countries is made of mergers and acquisitions (M&A) amongst the MNCs; in 2007 developed economies received 89 per cent of the $1.64 trillion in M&A.

The reason for the FDI shift in favour of developing countries was simple: the rate of return on FDI was twice as high in developing countries as in imperialist countries. Smith underlines that MNCs increasingly prefer to externalise their operations, with outsourced Southern producers competing with one another in driving down wages and intensifying labour. As per UNCTAD in 1999, prices of manufactures exported by developing countries fell relative to those exported by EU by a shocking 2.2 per cent per annum from 1979 to 1994. Even as manufacturing is outsourced to the South, the ‘value added’ in the South does not grow correspondingly: a World Bank study revealed that the total value of manufactured exports from 55 low wage nations increased by 329 per cent between 1990 and 2004 (434 percent if China is included), while their combined manufacturing value addition (MVA) grew by a mere 46.3 per cent! Between 1990 to 1998, four years after NAFTA, Mexico’s manufactured exports increased nearly 10 fold but MVA barely increased by 50 per cent and its share in global MVA even fell in the same years.

In Chapter 3, Smith emphasises that what is far more important, and yet much less visible, in the present global production networks is the outsourcing, or the hands-off production, as we saw above in the case of textiles from Bangladesh and Apple’s outsourcing to Foxconn. FDI makes arm’s length outsourcing invisible. “Arm’s length means hands clean”, Smith asserts, as it externalises direct responsibility for pollution, poverty wages, and suppression of unions, but without giving up any control over either production or prices.

As the centre of gravity of much of the world’s industrial production has shifted from the North to the South, so has Southern labour become central to the global economy. Smith takes this up in the next chapter. In 1950, 34 per cent of the world’s industrial workers lived in less developed regions; this rose to 53 per cent in 1980; by 2010, it rose to 79 per cent, or 541 million, and since then it has become 83 per cent. Correspondingly, even as industry’s share of employment in the global South rose from 14.5 per cent in 1980 to 23.1 per cent in 2010, industry’s share of employment in imperialist countries declined from 37.1 per cent in 1980 to 22.5 per cent in 2010. Yet as the previous century closed, with all the shift of manufacturing to the South, manufacturing as a means for employment generation was weakening due to automation and information & communication technologies (ICT). ILO reported that “in the late twentieth century, manufacturing ceased being a major sector of employment growth except in East and Southeast Asia” (104[7]).

Here Smith stresses one of the greatest contradictions of the present wave of globalisation: while capital is free to move as it wishes, there are severe restrictions on the movement of labour. This perpetuates wide wage disparities in the global labour markets. He also reminds us of the fact that for several European countries, in the era of their industrialisation, emigration was large enough to make growth rates of population and labour force insignificant or negative. The total migratory flow was equivalent to more than a sixth of the population of Europe in 1900 (17 per cent of 408 million).

By comparison, a negligible 0.8 per cent of the workforce of the developing world has moved to industrialised countries in recent times. If anything, the South appears to be bearing the brunt of this migration, as a lot of it consists of their most skilled workers. For instance, more doctors from Malawi were working in Birmingham than in Malawi itself. As per WHO estimates, between 1995 and 2004, Tanzania lost 78.3 per cent of its doctors through emigration, decreasing its physician density of low 4.1 per 100,000 people to pathetic 0.69; in the US the figure is 250 doctors per 100,000 people. This happened in Tanzania due to the shrinking of public health after the implementation of structural adjustment programmes.

Smith quotes former World Bank Economist Dani Rodrik: “Imagine that the negotiators who recently met in Doha to hammer out an agenda for world trade talks… really meant it when they said that the new round would be… designed to bring maximum benefits to poor countries. What would have they focussed on? Increasing market access…? Reform of the agriculture regime in Europe…? IPR…? The answer is none of the above. The biggest bang by far… was not even on the agenda at Doha: relaxing restrictions on the international movement of workers… nothing else comes close to the magnitude of economic benefits that this would generate…” (113, emphasis added) “One need not wait for trickle down as benefits directly accrue to workers…” Rodrik adds.

Smith argues that the real outcome of the global shift of production is not ‘development’, as the mainstream economics posits, but a vast sea of informal sector activities – “activities that are unrecognised, unrecorded, unprotected or unregulated by the public authorities” (116), as per ILO’s definition. Smith asserts, “What is truly modern is not universal progress towards prosperity and the rule of law but an accelerating descent into informality and precariousness” (120). And he adds in Mike Davis’s words, “the global informal working class is about 1 billion strong, making it the fastest growing and most unprecedented social class on earth” (118).

Moreover, the reproduction costs of the third world labour are borne by the working class families themselves, both in bringing up the children, who begin economically fending for themselves at a very tender age, and also developing their skills through informal channels, mostly on the job. Thus neither the State nor industry bear the reproduction costs, making labour even cheaper for the capital. Hence, most importantly, wages paid to the workers in the South are affected by factors that have nobearing on or relevance to the productivity of these workers, unlike what the marginalists and the neoclassical economists would like us to believe. Contrarily, the working class wages in the South are based on the “factors arising from conditions in the labour market and more general social structures and relations affecting the reproduction of labour-power, including the suppression of the free international movement of labour and the emergence of a vast relative surplus population in the Global South” (132).

In Chapter 5 Smith looks closely at global wage trends in the globalisation period. He examines purchasing power parity (PPP). To briefly explain PPP rates: A unit of developing country currency buys more goods and services locally than if it were converted into dollars (or euros, pounds or yen) and spent in the developed world. Thus we do not get a realistic picture of the real incomes of workers in different countries if we simply convert them into dollars using market exchange rates. For this reason, PPP exchange rates are commonly used to make such a comparison. PPPs are meant to be arrived at by comparing the prices for a common basket of goods and services across different countries, and thus getting a measure of the local purchasing power of different currencies. So while the exchange rate is Rs 65/US$, the PPP exchange rate is Rs 18/US$. For example, in 2017, you could exchange Rs 65 for $1. But if you spent Rs 65 in India, you could buy 3.6 times what you could buy with $1 in the US. (So runs the theory, at any rate.)

Smith argues, however, that PPPs obfuscate, rather than reveal, the real difference in wages across the developing/ developed nation divide. According to UN Statistical Commission’s International Comparison Programme, in the absence of poverty-specific PPPs, the common practice is to use PPPs for aggregate consumption across classes in an economy; hence goods that are important to the poor and comprise a large part of their expenditure carry proportionately less weight. Moreover, PPP measures are skewed in favour of consumption in the developed countries, which is vastly different from that for the poor countries. As per the ILO, in advanced economies, food expenditure is less than 20 per cent of the total expenditure, while it is more than 60 per cent in many developing countries, not counting the inequalities within countries.

Furthermore, thanks to all the outsourcing, labour’s share of national income has been declining across countries, leading to the rise in profit margins. In any case the standard measure of labour’s share, the ratio of total employee compensation (pre-tax wages and salaries plus employer’s insurance and other social contributions) to total national income, is highly misleading, as it includes the salaries of top management including fantastic CEO salaries! Hence Smith attempts to deconstruct the ratio: to take one instance, the lowest 90 per cent of wage earners (84 per cent of the US’s total economically active population) earned 42 per cent of the total payroll in 1980 and just 28 per cent in 2011. Thus the share of the national income received by the bottom 90 per cent of US employees has declined by a staggering 33 per cent over thirty years of globalisation! In a similar vein, according to ILO’s World of Workreport for 2011, the share of domestic income that goes to labour declined in Asia by around 20 per cent between 1994 and 2010. Freeman and Oostendorp surveyed wages during early (1983-89) and later globalisation (1992-99) for 137 occupations across 135 countries and concluded, “Inequality of wages across countries in the same occupation increased over this period despite globalisation, which should have reduced the inequality” (158), thus puncturing the very basis of globalisation for the likes of Bhagwati as quoted above.

In the following chapter Smith examines the paradoxes involved in calculating labour productivity, especially across North-South divide. Productivity can be understood in terms of either value or volume. For example, if, for whatever reasons, the value of the final product increases, this in money terms is an increase in productivity without any actual change in labour productivity. Conversely, it can even be imagined that productivity could increase in volume terms, e.g. more coffee beans picked with the same number of workers, but decline in value terms due to fall in market prices, as has actually happened. Further, when an MNC outsources labour intensive production processes to the developing nations, the productivity of the workers who remain in its employment rises, even though nothing about their specific labour has changed. Thus the growing weight of services in the economies of the imperialist countries is as much a consequence as a cause of outsourcing. Smith in fact argues that, to the extent measured productivity growth is due to outsourcing of the labour intensive part of both manufacturing and services, this solves ‘a great American puzzle’ that the productivity growth is not shared with the American labour, as it reflects cost savings by outsourcing but not increase in output per worker hour in the US. Thus it is important to note that international differences in wages reveal most dramatically that wages are not based on the marginal product of labour, as neoclassical theory posits, but actually on the exchange value of the commodity labour power, as Marx systematically argued in Capital.

In Chapter 9 Smith takes up the most widely cited economic measure, the Gross Domestic Product (GDP), and shows how it hides more than it reveals about economies, especially about the economic relations between developing and developed economies. First and foremost, as the value of the final commodity price to the consumers is predominantly captured by the dominant corporates of the North, correspondingly the value capture also reflects in respective computations of the GDP. According to economist Michael Chossudovsky, “for each shirt which is produced in Bangladesh and sold in world market for $3, the GNP of the importing OECD country is going up by about $32” (endnote 10, 316). Similarly, those who cultivate and harvest coffee receive less than 3 per cent of its final retail price. In 2009 according to the International Coffee Organisation, the roasting, marketing and sale of coffee added $31 billion to the GDP of nine most important coffee-importing nations, more than twice of what allcoffee-producing and exporting nations earned from growing and exporting it. This figure for coffee-importing nations does not include the value added/captured by cafes and restaurants!

Moreover, these economic measures are changed depending on the convenience of the developed world. Smith reminds us that it is not a coincidence that in 1991, right after the fall of the Soviet bloc and the beginning of globalisation, the Gross National Product (GNP) as a measure of national income was turned into GDP – a quiet change that had very large implications. Under the old measure, the GNP, the earnings of a multinational firm were attributed to the country where the firm was owned – and where the profits would eventually return. Under the GDP, however, the profits are attributed to the country where the factory is located, even though they won’t stay there and end up in the parent country or a tax haven. Cobb et al.emphasise that, “This accounting shift has turned many struggling nations into statistical boomtowns, while aiding the push for a global economy. Conveniently it has hidden a basic fact: the nations of the North are walking off with the South’s resources, and calling it a gain for the South” (256).

Smith shows that the computation of GDP prioritises value addition through the market over everything else that matters in a society and economy (remember, for more than a decade now our rulers have only GDP growth to show for every ill of society and every single travail of the people). Thus, for GDP, not only are the household sector and the care economy of little consequence, but surprisingly, even the State sector does not matter, as it supposedly does no net value addition, and provides services only equal to the tax collected to pay for these services. Smith calls this “blatant absurdity and a clear indication of the ideological bias embedded in the concept used to construct GDP” (257).

On the other hand, environmental externalities are hardly counted. As a result the GDP of countries like China and India is significantly over-estimated. Conversely, financial services, investment in R&D and software costs have been conveniently added to the measure of national income since the 1990s, padding up the GDP, especially of the imperialist countries. Smith comments wryly, “If GDP is a true measure of a nation’s product then the residents of Bermuda, a British overseas territory, which in 2006 boasted of the world’s highest per capita GDP, are amongst the most productive members of humanity” (260) (Bermuda is not an exception, most of the the top per capita GDP ‘nations’ today are tax havens).

III. Analysis of Globalisation through the Marxian Lens

Perhaps the most significant aspect of Smith’s work lies not only in demonstrating the inadequacy of neoclassical economics in explaining the actual existing reality, but in attempting to explain globalisation of production. In Chapters 7 and 8, Smith attempts to explain globalisation using the basic building blocks of the Marxian framework developed in Capital.

In the present era of excess supply and never-ending global economic crisis, the primary reason for globalisation, according to Smith, remains wide disparities of wages between South and the North, what he calls Global Labour Arbitrage. In the US, for example, worker compensation still makes up nearly 80 per cent of the total domestic corporate income, while wage rates in China and India range from 10 to 25 percent of those for comparable quality workers in the US. But neoclassical theory cannot even attempt to grapple with this phenomenon, as for them price is the true representation of value, and thus the price received for a commodity is identical to the value generated in its production. Smith emphasises, “This conflation (of value and price) excludes the possibility that a firm’s value added… may represent value generated in other firms; while conflation can only be implemented by making the production process invisible, creating a world in which prices are not only discovered in the marketplace… but arise from it. Modern trade theory applies these microeconomic precepts directly to the global economy, substituting individual nations for individual property owners (195).”

Smith reminds us that this is not a new way of looking at North-South economic relations, and indeed this question was asked most persistently by the Cubans after the revolution. While addressing the UN General Assembly, Castro said in 1979: “The first fundamental objective in our struggle consists of reducing until we eliminate the unequal exchange that… converts international trade into a very useful vehicle for the plundering of our wealth. Today, one hour of labour in the developed countries is exchanged for ten hours of labour in the underdeveloped countries… Unequal exchange is ruining our peoples. It must end!” (209-10) And Che reminded the then socialist bloc of the need for a fresh look at the North-South relations in his speech in Algeria in 1965: “How can it be ‘mutually beneficial’ to sell at world market prices the raw materials that cost the underdeveloped countries immeasurable sweat and suffering, and to buy at world market prices the machinery produced in today’s big automated factories?… The socialist countries have the moral duty to put an end to their tacit complicity with the exploiting countries of the West” (211). And Cuba was partially successful in forging somewhat different economic relations (though not changing the basic structure of its economy) with the then USSR from what prevailed in general, especially amongst the so called market-based economies. One instance: during the 1980s the dumping of heavily subsidised US and European sugar surpluses depressed the world market prices to as little as 5 cents/ pound – the “garbage dump price”, according to Castro – yet Cuba received 40 cents price from the USSR.

In Chapter 8, Smith attempts to connect Lenin’s idea of imperialism with Marx’s law of value to clinch his argument. As per Lenin, the division of nations between oppressors and oppressed was the essence of imperialism. Imperialism is characterised by the concentration of capital into giant corporate monopolies, the merging of financial and industrial capital, and of both of these with the State. But after Lenin’s Imperialism, Marx’s ideas on value and attempts to find the source of capitalist exploitation at the shop floor have been rather ignored even among those scholars who were willing to see the huge North-South divide. As leading Marxist Anwar Shaikh argued, “Ever since publication of Lenin’s Imperialism it has become a Marxist commonplace to assert that capitalism has entered its monopoly stage. Now, in the case of monopoly… the laws of price formation must be abandoned… the focus instead shifts to the domestic and international rivalries of giant monopolies… to the antagonisms and conflicts between these states… The law of value, like competitive capitalism itself, fades into history” (emphasis added, 228).

Marx’s basic point about capitalist exploitation was that the source of surplus value is labour, that too at the shop floor. As per Marx, labour power is the only commodity whose use value generates more than the exchange value of the commodity, the value for which it is bought at the market place. (The use value of labour power is living labour.) Therein lies the essential source of surplus value. Once the labour power, that is a worker’s capacity to work, is bought by a capitalist, Marx divides the work day into two broad parts – one part to reproduce the exchange value for which she or he has been bought, and the rest to produce surplus value. Marx also posits that the first part will tend to be equal to whatever is required to reproduce the worker’s labour power, so that she or he can report for work the next day and simultaneously produce the next generation of labour power for the capitalist through family and offspring. Further, a capitalist can increase his surplus in two ways. First by increasing the work day – so, all else remaining equal, if the work day is elongated for the same wages, the surplus increases. Marx called this absolute surplus value. In the early phase of capitalism Marx demonstrates in Capital that absolute surplus value was the predominant form of the capital-labour relation, where the workdays in early factories were never-ending, till the working class organised and fought for limiting the work day. The second way of increasing surplus is if the worker’s subsistence can be produced in a shorter time period, thus shortening the first part of the work day and leaving more work time for generating surplus. This happens as the worker’s productivity rises with technological change, and as such change cheapens the production of the worker’s subsistence needs. Marx calls this relative surplus value, and posits that this becomes the dominant form of surplus extraction in mature phase of capitalism.

But the above two forms of surplus extraction were based on the idea that essentially capitalists extract surplus value from the labour of their respective countries. As the dominant form of surplus extraction becomes arm’s length outsourcing based on huge divergence of global wages, like the outsourcing of textiles to Bangladesh and Apple products to Foxconn, Smith emphasises on a third form of surplus extraction, where the price of labour power can be pushed even below its value. He terms this super exploitation. To quote Higginbottom: “The idea of super exploitation needs to be conceptually generalised at the necessary level of abstraction and incorporated in the theory of imperialism. Super exploitation is a specific condition within the capitalist mode of production… the hidden common essence defining imperialism. The working class of the oppressed nations… is systematically paid below the value of labour power of the working class of the oppressor nations… This is not because the Southern working class produces less value, but because it is more oppressed and more exploited” (239). Smith emphasises that though Marx never elaborated on this third form of surplus value, he did definitely allude at multiple places in Capital (in both Volume I as well as III), to what he called “the constant tendency of capital… to force the cost of labour back towards… absolute zero[8].” Smith concludes, “Now, the capitalist ruling class controls a greater portion of the world wealth than ever in history, and that wealth is growing faster than ever before, while the fraction of it being invested productively has never been lower. Global labour arbitrage – super exploitation – that is, forcing down the value of labour power, the third form of surplus value increase, is now the increasingly predominant form of capital-labour relation” (250).

IV. Debate with Various Left Currents on the Question of Imperialism

Smith’s work embarks on a spirited debate with various Left currents and trends. In the second part of Chapter 7, Smith argues that, to make sense of the imperial order of the 21st century capitalism, it is essential that global system of commodity production based on significant labour arbitrage is placed at the centre of analysis.

Citing prominent Marxist Ellen Wood in Empire of Capital that, the “new imperialism (is) no longer… a relationship between imperial masters and colonial subjects but a complex interaction between more or less sovereign states” (199), Smith counters that, by leaving out the value relation between labour and capital from the concept of imperialism, “Wood empties it of both the exploitation of labour by capital and the exploitation of poor nations by rich nations, reducing imperialism to interstate rivalry between great powers” (199). Smith also attacks David Harvey’s currently influential argument on new imperialism, which, according to Harvey, is characterised by “a shift in emphasis from accumulation through expanded reproduction to accumulation through dispossession”, this now being “the primary contradiction to be confronted” (199-200), that is surplus extraction through privatisation of welfare and/ or commons, etc. According to Smith, Harvey “does not recognise that imperialism’s most significant shift in emphasis is in an entirely different direction– towards the transformation of its own core processes through the global labour arbitrage-driven globalisation of production” (200), a mode of surplus extraction that is entirely internal to the labour-capital relation and not external in terms of state-people relation and the latter’s dispossession through the instruments of the state. Smith also refutes Harvey’s claim that the shifting of production to the Newly Industrialised Countries (NICs) since the 1970s was a “power shift” in the global political economy in favour of the South. Contrary to Harvey, Smith argues, “Far from ending US dominance – in other words, the ability of its corporations to capture the lion’s share of the surplus-value – outsourcing has opened up new ways” (202) for the imperial capitalists to entrench their dominance over South.

Smith severely criticises Euro Marxists such as Nigel Harris, Charles Bettelheim, Alex Callinicos, Ernest Mandel, and others, who deny or ignore the phenomenon of unequal exchange between North-South, and attempt to explain the deep chasm between North-South wages by claiming that the higher wages in North are due to higher productivity based on higher organic composition of capital (i.e., the ratio between the capital invested in plant, machinery and materials to the capital spent on wages). Euro-Marxists had earlier claimed that wage differentials between developed and underdeveloped countries could be explained by the differences in productivity. Thus, despite earning more, workers of the North could still be more exploited. However, now, as Smith says, the rug has been pulled from under the feet of Euro-Marxists by the recent globalisation and shifting of all sorts of industries, including hi-tech manufacturing, to the South. Now the productivity of the workers in such hi-tech manufacturing in the South is equal to that of workers in the North, but the wage differentials remain.

Smith also has differences with the pioneers of dependency theory like Samir Amin and Monthly Review school about their understanding of contemporary imperialism and the place of outsourcing of manufacturing to the South in it, though agreeing a great deal with their analyses. This debate with other trends in the Left, and Smith’s emphasis on situating imperialism and outsourcing of manufacturing to the Global South right at its centre, have significant political implications, but we will leave it for the interested reader to go through it in original in Smith’s book.

V. Imperialism and the Crisis of Capitalism in the 21st Century

In the final chapter of the book Smith argues that the present imperial order is hurtling towards a great capitalist crisis. His main point here is that there is an intimate connection between outsourcing of manufacturing and financialisation (though a detailed analysis of finance is not taken up here). Both are part of the same capitalist system and cannot be looked at in isolation. He insists that the crisis is ultimately rooted not in finance but capitalist production: “There is a very real connection, therefore, between the vertiginous growth of the financial wealth of the world’s ‘high net worth individuals’ (those with more than $1 million in financial assets), which has grown from $32.8 trillion in 2008 to $56.4 trillion in 2014, …and inhuman work and living conditions of the Bangladeshi and Chinese workers…” (299)

Smith points out that outsourcing can on the one hand lead to enormous value capture of a global value chain by corporations of the imperial nations, and simultaneously lead to significant reduction in their capital and labour costs. This to him is one of the keys for the postponement of the capitalist crisis by several decades. Low interest rates in the US encouraged households and corporations to take on more debt and at the same time pushed banks and other private investors to make riskier bets in their hunt for ever higher profit rates. The US could afford to keep the interest rates low in large measure because China and other manufactures-exporting countries, compelled by what Lawrence Summers called the “financial balance of terror”, recycled their export earnings to the US government as loans at zero or negative real rate of interest – “a Marshall plan in reverse, in which poor countries lend the richest the money they needed to purchase the product of their factories.” (282) Andrew Gamble asserts, “It was the cheapness of Chinese goods and its willingness to fund US deficits which kept the bubble inflating as long as it did.” (283)

But this can only postpone the inevitable, as can be seen in case of Japan since the 1990s. “Despite a massive injection of public funds into the crippled banking system that raised Japanese government debt from 10 per cent of GDP to over 180 per cent (now it has become 250 per cent), despite the relocation of labour intensive production processes on a colossal scale to the low wage Asian neighbours, and despite booming growth in the rest of the world, Japan barely managed to keep its head above the mire” (286). And there is every fear now of the “Japanification” of the rest of the developed world, Smith emphasises. According to Martin Wolf of Financial Times, between 1996 and 2006, current account “imbalances increased roughly five times relative to world output. Three categories of large net capital exporters emerged: China and emerging Asia; aging high income exporting economies (Germany and Japan); and the oil exporters… There also emerged two groups of large net capital importers – the US and ‘peripheral Europe’ – Western, Southern and Eastern Europe” (287). In the same period, the US trade deficit increased from 1.6 per cent of GDP to 5.8 per cent. According to Bloomberg (13 Sep 2018), the world today is saddled with a debt of $250 trillion, more than three times the global GDP.

Given the lopsided imperial political economy, corporations are using the easy availability of credit to finance share buybacks and jack-up share prices; between 2009 and 2015, the top 500 US companies returned $2.7 trillion to investors through share buybacks, a period that coincides with the second longest US bull market run since the 1950s. Pre-tax corporate profits are now at record high – more than 12 per cent of GDP – while net investment is barely 4 per cent of output. This is very odd, as investments are supposed to be driven by rate of interest and the opportunity available for profit. Thus capital has gone on what Smith terms as ‘investment strike’. According to UNCTAD, in 2008, the 963 nonfinancial companies in S&P Global index sat on a cash pile of $1.95 trillion; by 2012, total reserves had grown to $3.16 trillion and now it has crossed $5 trillion!

Rapidly the whole globe, including the South, is getting engulfed in this crisis. According to the IMF, the total corporate debt of indigenous nonfinancial firms in major emerging markets, which in 2004 stood at $4 trillion, had by 2014 skyrocketed to more than $18 trillion, or 73 per cent of their GDP; by 2015 according to the International Institute of Finance this had reached $23.7 trillion or 90 per cent of total emerging market GDP. This could lead to a wave of corporate bankruptcies with the potential to torpedo banking systems across the globe. Meanwhile, as per McKinsey, total emerging market debt rose to $49 trillion by 2013 end, accounting for 47 per cent of the growth in the global debt since 2007. China’s total debt as a proportion of GDP has gone up from 156 per cent in 2008 to 244 per cent in 2014 (and now 277 per cent), and for South Korea it has become 254 per cent. Smith asserts, “(I)t is not just financial crisis, it is not just another crisis of capitalism, it is a crisis of imperialism” (314), and hence he believes the need for a global struggle against it cannot be overemphasised.

In the end one would like to raise three important concerns about the work:

Smith lapses into determinism and overstating his case when he asserts that twenty-first century capitalism, consisting of global labour arbitrage and outsourcing of manufacturing, is the ‘fully evolved modern form’ (225) of imperialism.

This leads him into a greater difficulty, that of downplaying the significance of other aspects of imperialism that Lenin had described in his classical tract, like surplus extraction through control over agricultural commodities and extractive industries in the third world by the first world nations, control over markets in the third world, etc. through out the capitalist past and present.

And he launches into an ill-informed critique of Mao’s policies in a section on the Sino-Soviet split (Chapter 7), without substantiating it, and providing little evidence on something that is also not central to his main argument on imperialism.

Finally, for three significant reasons, Smith’s work needs a serious consideration and engagement amongst all those on the Left who are grappling with the political economy of India. First and foremost, it is a reminder that the overarching reality of imperialism needs to be acknowledged for any understanding of present-day India. Second, for those who feel that through ‘make in India’, and by doing more manufacturing, India will somehow be able to ‘catch up’ with the West, this book needs a close reading. And last but not least, Smith does an important job of bringing Marx’s value theory right into the centre of the debate on imperialism and globalisation.

[1]Comments of Manali Chakrabarti and RUPE editors on an earlier draft are gratefully acknowledged.

[2]Rahul Varman teaches at IIT Kanpur (rahulv[at]iitk.ac.in)

[3]Due to lack of standard nomenclature, ‘South’/ ‘developing countries’ has been used here for the poor nations and West, North for the developed imperial industrial powers, primarily US, EU and Japan.

[7]Until specified otherwise, all numbers in brackets after quotes are page numbers of Smith’s book. In 2012, the estimated size of the global reserve army of labour was 2.4 billion, while the total “active army” was estimated at 1.4 billion (John Bellamy Foster and Robert W. McChesney, The Endless Crisis(New York: Monthly Review Press, 2012).